Arbitration Favors Italian ENEL Over Salvadoran CEL

The decision means that ENEL will be able to capitalize the geothermal GEO and become the majority shareholder in the business it maintains with the Executive Hydroelectric Commission of the Lempa River (CEL).

According to an article in Elsalvador.com, ENEL had sued its partner for breach of contract in November 2008 because CEL had blocked a $100 million investment, which meant that ENEL went from having just over 36% the company's shares to almost 53%. "The contract, signed in 2002, provides that Enel has the right to capitalize on their investments, that is to say, investments in La Geo are transformed immediately into shares."

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The way that the government handles the arbitration failure at the International Chamber of Commerce on the La Geo case could dictate the success or failure of state-business partnerships.

The private-public scheme has been promoted recently by the Salvadoran government for the implementation of large public infrastructure projects because they can free the state from the significant investments that such works require.

The case was presented before an international tribunal in France, which the parties had established to settle conflicts that might arise in the preparation of the LaGeo.

Italian company, Enel, which partnered with the Salvadoran government in the operation of the LaGeo geothermic electric generating plant, took the government to court internationally for $120 million for not allowing it to hold the majority of shares that corresponds to the investments carried out, based on the contract between the two parties.